Greg Hinz On Politics

RTA sues Kankakee, Channahon for $100-million 'tax scam'

The Regional Transportation Authority is suing two cities just beyond metropolitan Chicago for $100 million, asserting that they're participating in an illegal sales-tax "scam" that hurts transit funding.

In the latest move in an emerging legal and political battle, the RTA sued Kankakee and Channahon, which are located in Kankakee and Grundy counties, near the six-county RTA region that collects a special sales tax for regional transit operations.

The suit, filed in Cook County Circuit Court on Tuesday, contends that the two municipalities have struck deals with companies and go-between consultants in which the firms "deliver" goods at satellite front offices located in the two, even though the goods end up in Chicago and elsewhere.

Since Kankakee and Channahon have much lower sales taxes than the RTA area, the companies save money, splitting the take with the two communities, the RTA says. Chicago charges as much as 9.75% on the dollar, while the sales tax rate in Kankakee is 6.25% and 7.25% in portions of Channahon.

RTA Chairman John Gates said his agency repeatedly has filed Freedom of Information Act requests with Kankakee and Channahon to determine exactly how much it's losing, but the cities have failed to respond.

The suit will seek compensation for tax revenue the RTA contends it is owed as well as enforcement of the FOIA law, Mr. Gates said.

I first wrote about this dispute last spring, when both sides sought and failed to strengthen their position with legislation in the General Assembly. Since then, Chicago Mayor Rahm Emanuel has promised to file his own suit.

Kankakee and Channahon officials have defended their sales-tax moves as within the law, if advantageous to their own municipal treasuries. I'll get reaction from them as soon as I can.

The RTA's view is that it has been cheated. "I'm reluctant to sue, very reluctant," Mr. Gates told me in advance of this morning's RTA press conference. "I don't like to do this. But we don't have a choice," with sales-tax revenues comprising nearly half of the money the RTA uses to subsidize the Chicago Transit Authority, Metra and Pace.

The RTA also will keep pushing for new legislation to permanently and completely close this "tax avoidance scam," Mr. Gates said.

* * * 11 a.m. update: -- Kankakee Mayor Nina Epstein isn't returning phone calls yet. Her city attorney, Chris Bohlen, says the city has not yet been served but is following the law.

But I did catch Channahon Mayor Joe Cook on his cellphone, and he had plenty to say.

A hundred million dollars is "almost four times my annual budget," he said. "I feel a little like David," referring to the battle with Goliath. "The RTA probably has more employees than we have residents."

Mr. Cook strongly denies that his village is doing anything wrong. "The municipalities don't decide where sales-taxes are allocated. The Illinois Department of Revenue does," he said.

However, Mr. Cook conceded that his village has arrangements with private consultants who get companies to set up offices in town, and that details of those arrangements are subject to a "confidentiality agreement." He added that the state insisted on the latter, to protect taxpayers' rights.

"We're following the law," he concluded, adding that he's awaiting a call from Mayor Rahm Emanuel to talk about the matter.

Meanwhil,e the RTA press conference drew CTA President Forrest Claypool and several lawmakers, but no one from Metra or Pace, though the agencies are said to be supportive.